Risk Management Case Analysis of ICBC's "Crude Oil Treasure" Incident

Abstract

Driven by the marketization of interest rates and technological innovation, commercial banks in China continue to innovate various financial services businesses and devote more attention to attracting customers to purchase various investment and wealth management products in order to expand sources of bank performance and gain more benefits. In 2018, paper crude oil-linked wealth management products emerged. Paper crude oil products are linked to the prices of international crude oil futures contracts. The products feature controllable risks and relatively high returns, which are very popular among large numbers of customers. However, despite the continuous expansion of China's financial derivatives trading volume, the categories of derivative products and regulation still have many limitations. The development of innovative paper crude oil-linked products is not perfect and has many potential risks, which are highly susceptible to market fluctuations. Taking China Bank's "Crude Oil Treasure" product as the research focus, this paper analyzes the massive loss incident that occurred in late April 2020 through case study analysis and qualitative analysis methods. It is divided into four parts. The introduction part explains the research background, significance, content, methods and innovations and inadequacies of this paper. The first part sorts out the background and process of the "Crude Oil Treasure" case at China Bank and elaborates on the operating principles of this product. The second part analyzes the "Crude Oil Treasure" case in detail. It first focuses on the problems in the product's trading liquidity, domestic and international time differences and product promotion. Then it focuses on the internal and external causes of the case, discussing external factors such as international crude oil market turmoil and futures trading characteristics, and internal factors such as product design, risk control and lack of experience. It also evaluates the hedging strategy, contract design and compliance of the "Crude Oil Treasure" product. The third part mainly analyzes the impacts of the "Crude Oil Treasure" rollover incident and China Bank's subsequent response measures. The fourth part puts forward certain countermeasures and suggestions from the perspectives of bank management, investors and regulatory agencies to prevent such incidents from recurring based on the case analysis.